Friday 20 November 2020
As a result of rounding throughout this document, it is possible that tables may not cast, and change percentages may not calculate precisely.
FY20 Financial Performance
Progress in strategic execution
Continued focus on strategic execution has resulted in :
Strategic priorities for FY21 and beyond
Sage has made considerable progress in its transition to a SaaS business model over the last two years, significantly increasing the proportion of revenue from subscription and Sage Business Cloud, and delivering on the priorities we set out in 2018.
Sage Business Cloud adoption and growth will remain our key objective in FY21 and beyond. However, with the pace of digital transformation among small and medium businesses now growing, we intend to increase our focus on accelerating cloud native solutions across the Group, initially in our largest markets of Northern Europe and North America. At the same time, cloud connected will remain an important driver of growth, particularly in Continental Europe. We will also focus on further embedding SaaS capability and culture throughout Sage.
To support these strategic priorities, Sage intends to allocate further resource to Sage Business Cloud, in particular to cloud native solutions, and to increase its investment in sales and marketing and product development (R&D). This will be part-funded by cost savings from the restructuring of our professional services business, and other efficiencies across the Group. Given the uncertain economic environment due to COVID-19, we may flex the level of sales and marketing investment dynamically during the year, in response to market conditions.
The increased investment is expected to result in a planned reduction in organic operating margin of up to three percentage points. Delivery of these strategic priorities is expected to drive recurring revenue growth and new customer acquisition, generate efficiencies and, over time, lead to significant value creation through sustainable profit and cash generation.
Against the uncertain economic backdrop, we currently expect organic recurring revenue growth for FY21 to be in the region of 3 % to 5 %, weighted towards the second half of the year. We also expect other revenue (SSRS and processing) to continue to decline, in line with our strategy. Organic operating margin is expected to be up to three percentage points below FY20, depending on the level of additional investment we make during the year.
Looking beyond FY21, we expect margins to trend upwards over time, as the investment drives recurring revenue growth and operating efficiencies.
Steve Hare, CEO, said :
“We’ve delivered a strong performance in FY20, achieving recurring revenue growth in line with the guidance we gave at the beginning of the year, despite the COVID-19 pandemic. I would like to thank all of our colleagues and partners for their continuing commitment to our customers, communities and each other during this period. We’ve also made good strategic progress, delivering against our customer, colleague and innovation commitments. While the near term remains uncertain, these foundations position us well to support customers as they adopt digital business models, and I am confident that our additional investment in Sage Business Cloud, and in particular cloud native solutions, will deliver stronger growth and drive the future success of the Group.”
Sage is the global market leader for technology that provides small and medium businesses with the visibility, flexibility and efficiency to manage finances, operations and people. With our partners, Sage is trusted by millions of customers worldwide to deliver the best cloud technology and support. Our years of experience mean that our colleagues and partners understand how to support our customers and communities through the good, and more challenging times. We are here to help, with practical advice, solutions, expertise and insight.
A presentation for investors and analysts will webcast at 8.30am UK time. The webcast can be accessed via www.sage.com/investors. Participants may also dial in by calling +44 (0) 20 7192 8338, using pin code 9039088. A replay of the call will also be available for one week after the event on +44 (0) 333 300 9785 using pin code 9039088.
1 Please see Appendix 1 for guidance on the usage and definitions of the Alternative Performance Measures.
2 Organic revenue and operating profit for FY19 is restated to aid comparability with FY20. The definition of organic measures can be found in Appendix 1 with a full reconciliation of organic, underlying and statutory measures on page 10. Unless otherwise specified, all references to revenue, profit and margins are on an organic basis.
3 Assets held for sale at year-end include businesses in Central Europe and International. Further details are included on page 8.
4 Defined as organic recurring revenue from Sage Business Cloud as a proportion of organic recurring revenue from the Future Sage Business Cloud Opportunity.
5 Defined as the closing ARR from customers active at the start of the year, divided by the opening ARR for the year.
6 Defined as the normalised organic recurring revenue in the last month of the reporting period, adjusted consistently period to period, multiplied by twelve.